Understanding Your Options: A Case Study on Car Finance Agreements

The Situation:

Judith had recently entered into a hire purchase agreement for a new car when her financial circumstances changed unexpectedly, leaving her unable to meet the payment obligations. Conscious of her situation, she approached the lender to discuss the possibility of exiting the agreement early.

The Lender’s Response:

The lender directed Judith towards a process known as ‘voluntary termination’, a statutory right embedded within her contract that allowed her to return the car, provided she covered half of the agreement value, which in Judith’s case amounted to around £10,000. The lender also proposed setting up a repayment plan to help Judith manage this liability.

Judith’s Perspective:

Judith felt there had to be a more suitable solution for her predicament than the one proposed. When the lender insisted there were no other options, Judith sought the guidance of the Financial Ombudsman Service (FOS) to determine if the lender’s stance was indeed fair and just.

FOS’s Analysis:

 Upon reviewing Judith’s case, the FOS concluded that the lender had not fully considered her best interests. The lender failed to explore alternative exit strategies from the hire purchase agreement. One such strategy could have been ‘voluntary surrender’, which involves returning the car and deducting its sale proceeds from the outstanding amount owed. In Judith’s case, given the car’s recent purchase and retained value, this option would likely have reduced her financial burden to approximately £6,000, a significantly smaller sum than what was owed under voluntary termination.

The Resolution:

 The FOS believed that had the lender properly informed Judith about both voluntary termination and voluntary surrender—including their financial implications—it is more probable she would have opted for the latter. In light of this, the FOS instructed the lender to recompense Judith as if she had been allowed to choose voluntary surrender from the outset. The lender was also told to negotiate a fair repayment plan for the remaining balance after the car’s proceeds had been deducted.

Educational Takeaway:

This case study highlights the importance of being aware of all available options when seeking early termination of a car finance agreement. Both voluntary termination and voluntary surrender are viable options under different circumstances, and lenders are expected to practice due diligence in advising consumers on these alternatives.

For individuals who find themselves in similar situations, it’s crucial to be knowledgeable about your rights under hire purchase agreements and to seek professional advice if needed. Consumers have the right to clear and understandable terms, a 14-day cooling-off period, and protections under the Consumer Rights Act of 2015. It’s also important to be proactive and inquire about alternative options such as voluntary surrender, which may not be readily offered by the lender but can sometimes lead to a more favourable outcome.

You can read more about this particular case study on the Financial Ombudsman website HERE.

Disclaimer:

This content is for educational purposes only and does not constitute financial advice. If you’re considering terminating a car finance agreement early, it’s recommended to consult with a financial advisor or legal expert to explore all possible options and implications.

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